Maybe I just don’t understand what they’re doing. BUt it seems to me if I take out a 10 year policy that costs $100 per month, I’m betting that I’m going to die within that period of time and the company is betting that I won’t or that they won’t have to pay out. If I get to the end of that 10 year term, then I’m just out $12,000. What am I missing?
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Term policies are a great idea when you know that your financial needs will diminish at a certain point. For example, I have a 10-year-old child right now. A 10-year term policy would be cheaper than a whole policy, and it would provide coverage if I died while I still had my child under my care. The idea here is that, if I die in 11 years, my son will already be an adult and will be able to support himself.
It’s also important to note that some term policies have the option to convert to whole policies at the end of the term, too.
There are also variants on the concept like decreasing term policies, which decrease the payout over time. These are often tied to things like a mortgage, so if you die before your mortgage is paid off, the insurance will pay it off. And some people will just get a term policy for long enough to cover their mortgage.
I’ve seen people get term policies to cover the five years after the birth of a child. Mom had decided to stay at home with the baby for two years, then only work part-time until the child was in school. Since they were now relying on just a single breadwinner, they got a term policy for him to cover that period. Once Mom returned to work full-time, they had a backup, but if something had happened to the only breadwinner while Mom was out of work, they would’ve been in a pickle.
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